Legal Question in Real Estate Law in California

Actually the situation puts you in a potentially weaker position vis a vis the debt. You were obligated by the loan documents to give security for the debt. Through no fault of your own you failed to validly give that security. If you had, and you let them take the house at a trustee's sale, they would not be allowed to seek any deficiency from you if the value of the house was less than the debt. Now they have an unsecured debt, so their only option would be to sue you for the debt. They could then get a writ of execution on your house and sell it, but unlike a trustee's sale, you would still owe any balance after the sale. You are far better off working with the bank to clean up the mortgage issue, and then figuring out what to do about being unable to pay. The only thing I should add is that this analysis might be different if you qualify for bankruptcy. So before making any final decision on what to do, you should spend an hour with a bankruptcy specialist.

If the bank turns out to have no collateral, through no fault of its own, it may become an unsecured general creditor of yours. As such, it could sue you for the entire loan balance and get a judgment which could then be enforced against everything you've got (with the usual exceptions), your future wages, and so on. Loans secured by houses almost always limit the creditor to the remedy of foreclosure, with no right to go after the borrower personally. That's one of the benefits of the so-called antideficiency laws. I think you are better off cooperating.